You have just been hired by FAB Corporation, the manufacturer of a revolutionary

Question

You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company's costing system and "do what you can to help us get better control of our manufacturing overhead costs." You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control. After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March: Actual Cost in March $ 24,200 $ 78,100 $ 8,400 $ 149,600 $ 71,500 Cost Formula Utilities Maintenance Supplies Indirect labor $20,600 plus $0.10 per machine-hour $40,000 plus $1.60 per machine-hour $0.30 per machine-hour $130,000 plus $0.70 per machine-hour $70,000 During March, the company worked 26,000 machine-hours and produced 15,000 units. The company had originally planned to work 30,000 machine-hours during March. Required 1. Complete the report showing the activity variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) FAB Corporation Activity Variances For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total

Explanation / Answer

Ans)

1. The activity variances are shown below:

FAB corporation

Activity variances

For the month ended March 31

Activity variances

2. The Spending variances are computed below:

1000 U

Flexible Budget Planning Budget

Activity variances

Machine hours (q) 26000 30,000 Utilities ($20,600+0.10 per M.H) 23200 23600 400 F Maintainence(40,000 + 1.60 per M.H) 81600 88000 6400 F Supplies (0.3 per M.H) 7800 9000 1200 F Indirect labour(130,000 + 0.7 per M.H) 148200 151000 2800F Depreciation 70,000 70,000 None Total 330800 341600 10800 F

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